Your Money.

Trying To Get Some Mileage Out Of Low Rates

Consumers Should Keep In Mind That Interest On Gas Cards Balloons After A Short Introductory Period

November 10, 1994|By Sandra Block, Knight-Ridder/Tribune.

For years, gasoline credit cards offered little more than an easy way to fill up your tank without immediately emptying your wallet.

But not anymore. In recent weeks, three major oil companies unveiled new cards that offer gas rebates, no annual fees and low introductory interest rates.

BP Oil Co., for example, is offering a new BP/Visa credit card with an introductory interest rate of 8.9 percent per year. Both Sunoco and Exxon U.S.A. are introducing new MasterCards with introductory interest rates of about 9.9 percent, based on the prime rate in mid-August.

Low rates are temporary

But, like most good things, the low rates won't last forever. Interest on the BP/Visa card balloons to 9.9 percent over the prime rate after six billing cycles, or about six months. That's 17.7 percent at the current prime rate. Similarly, the Exxon MasterCard rate jumps to 10.9 percent above the prime, or 18.7 percent at current rates, after only five months.

The rate on the Sunoco MasterCard is good until January 1996. Then it rises to 9.9 percent above the prime rate, or about 17.7 percent at the current prime rate.

The low introductory rates-known in the industry as "teaser" rates-are becoming increasingly common in the competitive world of consumer debt. But they're not for everyone. Consumer groups say the rates won't help cardholders reduce their interest payments by much if they consistently carry a balance. That's because the increase at the end of the introductory period will likely wipe out any early savings, they say.

Robert McKinley, president of RAM Research of Frederick, Md., publisher of CardTrak, said he doesn't include cards with introductory rates of less than a year in his monthly survey of low-rate cards. "In 90 percent of the cases, the rates are going up more than 5 percentage points, so really the net rate for the year is far above what the teaser rate is," he said.

Ruth Susswein, executive director of Bankcard Holders of America, a non-profit organization based in Salem, Va., concurred, adding that her group recommends looking for a rate that lasts at least a year. "That's enough time to put a dent in your debt," she said.

Issuers of the new oil company cards countered that the products aren't targeted at people who carry long-term balances. The BP/Visa introductory rate "is aimed at people who may be carrying a large balance and want to pay it off over a six-month period at a lower interest rate," explained John Russell, a spokesman for Banc One Corp., which is issuing the card.

Betty Reiss, a spokesman for BankAmerica Corp., which is issuing the Sunoco card, said the introductory rate is "an incentive for people to try the card."

The credit cards' issuers hope the products' other benefits-particularly the rebates on gas and other purchases-will keep customers hooked even after the introductory interest rate expires. All three credit cards offer a 3 percent rebate on gas purchases. In addition, the BP/Visa and Exxon MasterCard offer a 1 percent rebate on non-gas credit-card purchases, while the Sunoco MasterCard offers a rebate of 2 percent.

But you would have to drive a lot of miles in a gas-guzzling vehicle to earn much in the way of free gas. If you charge $2,000 in brand-name gas on any of the three new cards, for example, you will receive a rebate of only $60. Purchases of an additional $2,000 in non-gas items on the charge cards would increase the rebate to $80 with the BP and Exxon cards, or $100 with the Sunoco card.

And that's assuming you pay off your balance every month. Customers who don't pay off their balances will pay far more in interest than they receive back in rebates, RAM's McKinley said. For that reason, those customers should forget about rebates and look for a credit card with a low interest rate that doesn't double in six months, he said.

Read the fine print

If you're still not sure whether one of the new gas cards is for you, look at the series of boxes on the back of the application. Every credit card application must disclose the terms of the annual interest finance charges, membership fees and other important information. This will help you figure out how much a card will cost you and how it stacks up against other products on the market.

"I think there is more reason today than ever before to ignore the bold print on the front of the envelope and go directly to the fine print on the back," Susswein said. "That's going to tell you what the real offer is."